Sometimes climate change appears where you least expect it — like the grocery store. Food prices have climbed 25 percent over the past four years, and Americans have been shocked by the growing cost of staples like beef, sugar, and citrus. While many factors, like supply chain disruptions and labor shortages, have contributed to this increase, extreme heat is already raising food prices…
This post was originally published on Latest – Truthout.
We’re told that, at least by conventional measures, the U.S. economy is doing great: Inflation is cooling and unemployment remains low. Pundits claim consumers just feel like the economy is troubled because they are still adjusting to higher prices after a global pandemic, and that helps to explain President Joe Biden’s dismal poll numbers as he seeks reelection in November. However…
This post was originally published on Latest – Truthout.
LA Times columnist Steve Lopez (3/10/24) offers, as an example of “fighting inflation,” a woman for whom cereal “has replaced meat for her at lunch and dinner.”
Los Angeles Times columnist Steve Lopez (3/10/24) had some tips for elders dealing with high prices for food—one of which was featured in the headline:
Cereal for Dinner? It’s One Way to Beat Supermarket Inflation
Despite cereal being offered as a cost-saving way to eat, Lopez didn’t mention that leading cereal maker Kellogg’s has been singled out for price-gouging—raising its price per unit 17% in 2023, far above the inflation rate, thereby boosting the company’s profits in 2023 by a whopping 540% (Quartz, 2/27/24).
But “profits” is a word you won’t find in Lopez’s column. Corporate greed (FAIR.org, 4/21/22, 6/1/23; CounterSpin, 2/9/24) is conspicuously missing from his list of reasons that prices go up:
Inflation is tied to rising labor costs, continued post-pandemic supply chain interruptions, avian flu and the impact of extreme weather—heat waves, wildfires and flooding—on global food production.
Rather than suggesting that consumers fill up on excess profits, Lopez could have encouraged his readers to participate in the upcoming three-month boycott of Kellogg’s products—organized under the hashtag #LetThemEatCereal (Salon, 3/10/24).
ACTION ALERT: The LA Times‘ Steve Lopez can be reached at steve.lopez@latimes.com. Please remember that respectful communication is the most effective. Feel free to leave a copy of your communication in the comments thread.
FEATURED IMAGE: Creative Commons photo by Like the Grand Canyon.
The post LA Times Shortchanges Readers With Deficient Explanation for Rising Food Prices appeared first on FAIR.
This post was originally published on FAIR.
New polling finds that the vast majority of U.S. voters say that corporate greed has been a major cause of inflation in recent years as corporate profits hit record highs and everyday Americans struggle to get by and afford basic life expenses. Eighty-four percent of Americans, or about five in six Americans, say that rising prices are caused by corporations wanting higher profits…
This post was originally published on Latest – Truthout.
Janine Jackson interviewed Groundwork Collaborative’s Rakeen Mabud about greedflation for the February 9, 2024, episode of CounterSpin. This is a lightly edited transcript.
Janine Jackson: If you buy groceries, you know that prices are high. And if you read the paper, you’ve probably heard that prices are high because of, well, “inflation,” and “shocks to the supply chain,” and other language you understand, but don’t quite understand.
One article told me that
economists see pandemic-related spending meant to stabilize the economy as a factor, along with war-impacted supply chains and steps taken by the Federal Reserve to raise interest rates
—all of which may be true, but still doesn’t really help me see why four sticks of butter now cost $8.
Not to mention that the same piece talks matter of factly about “upward pressure on wages,” which sounds like people who need to buy butter are getting paid more, but I’m pretty sure the language is telling me I’m supposed to be against it.
How do we interpret corporate news media’s coverage of prices? What aren’t they talking about?
Rakeen Mabud is chief economist and managing director of policy and research at Groundwork Collaborative. She joins us now by phone. Welcome back to CounterSpin, Rakeen Mabud.
Rakeen Mabud: Thank you so much for having me. It’s great to be back.
Pittsburgh Post-Gazette (1/19/24)
JJ: I want to say, the piece that I’m citing in the Pittsburgh Post-Gazette isn’t a bad piece. It’s just what passes for media explanation of what is a truly meaningful reality. People are really having trouble buying diapers, and buying food. And so to have journalists saying, “Well, it’s because of the blahdy blahdy blahdy blah that you couldn’t possibly understand”—the unclarity of it is galling to me, and it’s politically stultifying. I’m supposed to get mad at inflation, per se?
That’s the kind of informational void that Groundwork Collaborative’s work is intervening in. So let me just ask you to talk about what you find when you look into, for example, high grocery store prices right now.
RM: Yeah, this is a great question, and I love the fact that you’re focusing on the experiences of people, because that’s how we all experience the economy and, frankly, that’s how the economy is made, right, through our actions, through our demand, through our spending. And so it is really important to hone in on what’s going on to people on the ground, as we’re thinking about these big, amorphous concepts like inflation.
And the reality is, as you point out, prices are sky high for people around the country, and folks are really struggling. Grocery prices, obviously, are particularly worth digging into, because there’s a real salience of food prices in everybody’s lives. We all go to the grocery store on a weekly or maybe biweekly basis, and buy groceries to feed ourselves, and feed our families.
And my colleagues at the Groundwork Collaborative, Liz Pancotti, Bharat Ramamurti and Clara Wilson, recently authored a report that really digs into what’s going on with grocery prices. And what they find is that grocery price increases have outpaced overall inflation, and families are now paying 25% more for groceries than they were prior to this pandemic, compared to 19% of overall inflation. So there’s this gap between what folks are paying at the till, and what inflation would suggest.
And this is particularly hitting folks who are on the lower income end of the income distribution harder. In 2022, people in the bottom quintile of the income spectrum spent 25% of their income on groceries, while those in the highest quintile spent just under 3.5%.
And this is a trend that we see across the board with essentials. Because if something is essential, you have to buy it. If you earn less money, a bigger proportion of your income is going to go towards those essentials. And so that means that when you see inflation and, frankly, corporate profiteering, which I’ll get into in a second, showing up in spaces for essential goods, it’s always the people who are most vulnerable who are hit the hardest.
It’s wonderful that you’re really focusing in on groceries. And I think one thing to note, just to zoom out a little bit from grocery prices in particular, is that an underexplored topic still, I think, in the discussions around inflation is the role of corporate profit margins. Because the fact remains that corporate profit margins have remained high and even grown, even as labor costs have stabilized, input costs—the costs of things that are used to produce goods—have come down, and supply chain snarls have started to ease.
And in a different paper by two other of my colleagues, Lindsay Owens and Liz Pancotti, they find that from April to September of 2023, so that’s very recently, corporate profits drove 53% of inflation. When you compare that to the 40 years prior to the pandemic, profits drove just 11% of price growth.
There are a lot of explanations out there of what’s causing inflation, but it’s very important to focus on the role of big companies using the cover of inflation to jack up prices. And they continue to do that, even as their own costs are coming down.
JJ: And I want to say, you can illustrate that point with just data, as these works from Groundwork Collaborative do, but at the same time, you also have, as the kids say, receipts—in other words, earnings calls where CEOs are saying it out loud: Their situation in terms of supply chain, in terms of Covid and whatever, they’re using that as an opportunity to keep prices high.
Other Words (1/31/24)
RM: Yes, absolutely. So let’s talk about another essential good, which is diapers. And I think diapers are really a good example, because it illustrates what’s going on right now, and ties together the idea of corporate profiteering, but also this idea that, as scholars Isabella Weber and Evan Wasner put out there, about tacit collusion and implicit collusion. So let’s unpack that. What does that all mean?
So what they write about is that inflationary environments, when prices are rising across the board, it means that companies, especially those that are in a really concentrated market, can raise their prices, precisely because they know that their competitor is going to do the exact same thing. So if you are one of three big companies, and you know that your competitors are also going to raise prices, there’s no reason for you not to raise prices.
And that logic also applies in the reverse. So when costs are coming down, if you know that your competitors are going to keep their prices high, you’re also going to keep your prices high, which is I think why we’re seeing, even as input costs come down, prices are staying high, and people are still paying more than they should be, given the cost of input.
So diapers, right? Diapers, I think, is the perfect example for this. It’s a super, super concentrated market. Proctor & Gamble and Kimberly-Clark control about 70% of the domestic market, and diaper prices have increased by more than 30% since 2019, from about $16–$17 to nearly $22.
The main thing that goes into producing diapers is wood pulp. It’s also the main input into toilet paper, paper towels, basically paper products that we use around the house. The wholesale wood pulp prices really skyrocketed, by 87% between January 2021 and January 2023.
But in 2023, between January and December of 2023, [wood pulp] prices declined by 25%, but diaper prices have remained high. So what’s going on here?
And to your point, the executives at Kimberly-Clark and Procter & Gamble are not hiding the ball. P&G CFO said on their October 2023 earnings call that high prices were a big driver of the reason that they could expand their profit margins, and that 33% of their profits in the previous quarter were driven by lower input costs. And during their July 2023 earnings call, the company predicted $800 million in windfall profits because of declining input costs.
Same thing on the other side, on Kimberly-Clark’s side; their CEO said in October that the company “finally saw inflection in the cost environment.” And he admitted that he believes the company has a lot of opportunity to “expand margins over time,” despite what they’re “doing on the revenue side and also on the cost side.” So despite large input cost decline, the CEO thinks that the company has priced appropriately, and didn’t anticipate a new price deflation.
So diapers, I think, is a really clear example of how these big corporations are exercising their corporate power in a moment where things are a little murky for consumers. We don’t know, necessarily; we don’t have all the data at our fingertips, or the time, frankly, to figure out: Is the box of diapers more expensive for sensible reasons or not? And these big companies are taking advantage of both the information asymmetry, and the particular inflationary environment we’re living in.
JJ: And you don’t have a choice. You’ve got to buy the diapers. You can try to puzzle out why it costs more than it cost a year ago, or six months ago, but you still have to buy them. And that’s the thing.
I want to draw you out on something, because I see articles—it’s not that media are not ever saying “greedflation,” or that they’re completely ignoring the idea that corporations might be keeping prices high to profit, although it’s still not shaping the dialogue in the way that you would hope. But I do see articles that put “corporate profiteering” in scare quotes, as if it’s not a real thing; it’s just an accusation. And I wonder, what do we call “profiteering,” and how does it differ from capitalism doing its capitalism thing?
Rakeen Mabud: “The truth of the matter is there are vested interests for folks to want to vilify workers, to want to vilify big public investments.”
RM: This is a question that I’ve gotten over the years, as we’ve done this work. It is not necessarily a bad thing for companies to be making a profit. That’s OK. Companies exist to make a profit. What we’re talking about here is really profits above and beyond what they should be making: excess profits, windfall profits, and companies making these profits on the backs of consumers.
The example that I always go back to is just the classic price-gouging example. If you are in the middle of a hurricane or a disaster relief situation, and you are a person who sells bottles of water, or gallon jugs of water—if you jack the prices up because you know that people are going to need that water, because there’s no safe tap water to drink, that’s price-gouging, and that is illegal.
And yet that happens across our economy all the time. And we’ve seen that in particular over the last couple of years, as we’ve experienced the pandemic and have gone through these series of crises. And yet we don’t point it out.
And I think part of the reason this idea is not taken seriously, again, there’s a couple of reasons. The first is that it doesn’t accord with the traditional story of where inflation comes from. The traditional story of where inflation comes from is, workers are super greedy, they’re asking for higher wages. And so we end up with higher wages, which push up prices, which force people to ask for higher wages. And you end up with what economists call a wage-price spiral.
The other factor in the traditional story about where inflation comes from is, too much public investment flooding the economy is just going to jack up prices.
And the reality of the situation is that wasn’t the case here. We have seen historic public investment, and inflation’s come down. We have seen a strong labor market. We haven’t had to put millions of people out of work in order to bring prices down.
And so the textbook story of how inflation works is not really holding water in the moment. It’s not according with literally the reality that we’re seeing in the data.
And the truth of the matter is there are vested interests for folks to want to vilify workers, to want to vilify big public investments, and to continue to perpetuate an environment where big corporations can hold power and hold money and earn windfall profits on the backs of consumers. So I think it’s really important to know that this is a narrative that’s new, and it’s a narrative that is challenging for the dominant stories about how inflation works.
Wall Street Journal (12/2/23)
But the reason it has made a toehold, and I think more than a toehold at this point—I mean, even the Wall Street Journal in December had a headline that said, “Outsize Profits Help Drive Inflation. Now Consumers Are Pushing Back.” The reason it’s gotten its feet on the ground is because of the experience of people across the economy, this is exactly how people are experiencing the economy, and it’s the truth of the matter.
And I think that is really what certainly my work is always trying to do, is let’s get to how people are experiencing the economy and speak to their concerns, because people know what’s up. You don’t need to tell them that big companies are exploiting them. They are very willing to believe it, because it’s how they’ve interacted with the economy for years.
JJ: I have to say, the idea that there’s an abstraction that I’m supposed to pay obeisance to, and it’s going to keep wages down and public investment down, but somehow I’m still supposed to be for it, is kind of strange to me, the idea that I’m supposed to be so opposed to inflation that I’m supposed to be against higher wages for workers, and I’m supposed to be against more public investment. It just shows how far we’ve gone in fealty to an abstraction, essentially, in terms of economic understanding. I find it very odd to have folks saying, “Oh, I don’t want upward pressure on wages, because somehow that’s going to be bad for me ultimately down the road.” It seems to me a kind of distortion of our understanding of the way an economy should work, and who it should serve.
RM: Right, I mean, we are the economy. That’s what we’re always saying at Groundwork, that we are the people, the regular people are the people who are the economy, and it’s our wellbeing that reflects whether the economy is doing well.
And I also think it’s important in conversations about inflation, I think; we pay attention to prices and cost of living and affordability in a moment of crisis. But the truth of the matter is that the high prices that people have been feeling in their household budget long predate this particular inflationary moment: the cost of childcare, the cost of healthcare, the cost of housing, the cost of education. All of these things go beyond what we’re experiencing in this particular moment. They have been burdens on people for decades.
And there are also structural factors that are perpetuating these burdens. So I think housing costs are a really good example. Housing costs are up about 21%, and we have this longstanding shortage of affordable and high-quality housing in this country. There have been instances, over the course of the last couple of years, where we’ve seen big home builders and landlords celebrating inflation as a way to restrict housing supply. Literally had a home builder say, “We could build a thousand more houses, but we’re not going to, because it’s going to help us restrict supply, and therefore jack up the prices of the homes we can build.” We’ve also seen landlords really celebrating inflation as a way to skim a little bit more off the top by raising rent a little bit higher.
So all of that is certainly happening, but we also need to pay attention to broader macroeconomic forces in perpetuating this housing crisis. So one of the best ways, kind of a no-brainer, of addressing a housing supply shortage is to build more houses. But the Federal Reserve, since we last spoke, has embarked on an interest rate–hiking rampage. What does that do? Sky-high interest rates crush new housing construction, because it stymies private investment, and it pushes potential buyers, because of high mortgage rates, back into the rental market, which pushes rents up.
So the Federal Reserve says, “We’re raising interest rates through this theory and this channel that we think works,” which, by the way doesn’t, because again, as I mentioned, we haven’t necessarily seen mass unemployment in order to bring down prices. But they’re saying, we’re trying to bring down prices, guys; we’re trying to bring down prices by raising interest rates. But really what they’re doing is making the problem worse, and they’re perpetuating this cost-of-living crisis that long predates the pandemic.
And so it’s really important, I think, to also call out big institutional actors, like Chair Powell, to lower rates immediately, given that it’s clear from the data that his rate hikes hadn’t had the intended effect, and are actually making the problem worse.
Groundwork Collaborative (2/24)
JJ: One of the latest reports from Groundwork is called “What’s Driving the Rise in Grocery Prices–and What the Government Can Do About It.” So let me ask you, finally, and it’s a lot, but what can government do about the problems that we’re talking about?
RM: I think, actually, we’re living in an exciting time when it comes to an expansiveness in the policy tools that folks are thinking about and using in order to bring down prices. We’re not in your 1970s inflationary world, where we’re just hoping that the Federal Reserve does its job and hoping for the best. They’ve sort of been discredited, and, again, time to bring down interest rates.
But we’ve seen President Biden and his administration really taking the issue of profiteering seriously. I mean, just last month, he said to any corporation that has not brought their prices back down, even as inflation has come down, even as supply chains have been rebuilt, it’s time to stop the price-gouging. To have that come from the president, to call out the big corporate actors who are taking advantage of people and lining their coffers, is remarkable.
And I think it’s not just words, right? The administration has taken some really early actions promoting competition in really concentrated markets—like meat packing, a sector that is really driving grocery-price inflation right now.
Agencies like the Consumer Financial Protection Bureau are going hard after junk fees. Those are the sort of, when you check into a hotel, it says resort fee, this fee, that fee, and you never really know what you’re paying for. And the truth is, you’re just paying for these companies to get richer, right? So that in banking, overdraft fees, the CFPB has been going hard after junk fees.
The FTC and the DoJ are aggressively using their authority to crack down on the concentration that allows these companies to get away with jacking prices up on consumers.
And so I think what we need to see is a continuation of that. Look at anti-competitive mergers, especially throughout the food industry, but other industries where they’re producing essentials, to make sure that these environments that facilitate and breed both profiteering and tacit collusion are not allowed to be created. Finalize regulations that improve fairness, competition and resiliency in supply chains.
And then the last policy idea here was—it feels a little bit unrelated, but it’s actually one and the same—we have a big opportunity to tackle the full problem of high prices coming up, because many of the provisions of the Tax Cuts and Jobs Act, the 2017 Trump tax cuts, are expiring at the end of 2025. And one of the best ways to tax excess profits is simply to raise the corporate tax rate. That’s it. It’s a pretty easy policy, and one that people understand and can get behind.
JJ: Thank you very much. We’ve been speaking with Rakeen Mabud, chief economist and managing director of policy and research at Groundwork Collaborative, online at GroundworkCollaborative.org. Thank you so much, Rakeen Mabud, for speaking with us this week on CounterSpin.
RM: Thank you so much for having me. It was such a pleasure.
The post ‘It’s Important to Focus on Big Companies Using the Cover of Inflation to Jack Up Prices’ appeared first on FAIR.
This post was originally published on FAIR.
Other Words (1/31/24)
This week on CounterSpin: CNN host Dana Bash asked a question in the Republican presidential debate (1/10/24) in Des Moines, Iowa:
The rate of inflation is down. Prices, though, are still high, and Americans are struggling to afford food, cars and housing. What is the single most important policy that you would implement as president to make the essentials in Americans’ lives more [affordable]?
Unfortunately, she asked the question of South Carolina Gov. Nikki Haley, who answered with word salad involving “wasteful spending on a Covid stimulus bill that expanded welfare, that’s now left us with 80 million Americans on Medicaid, 42 million Americans on food stamps.” Haley concluded with the admonition “quit borrowing. Cut up the credit cards.”
“Cut up the credit cards” is interesting advice for people who are having trouble affording diapers, but it’s the sort of advice politicians and pundits dole out, and that corporate news media present as a respectable worldview, worthy of our attention.
There is another view, that acknowledges that the same people who earn wages also buy groceries, and pretending that we’re pitted against one another is not just mis- but disinformation.
Rakeen Mabud is chief economist and managing director of policy and research at Groundwork Collaborative. They have new work on what’s driving grocery prices, that doesn’t involve getting mad at people using food stamps. We’ll hear from her today on the show.
Plus Janine Jackson takes a quick look at analogies that encourage genocide.
The post Rakeen Mabud on Greedflation appeared first on FAIR.
This post was originally published on CounterSpin.
The British Labour Party’s hopes rest on the belief that a combination of green industrial policy and supply-side reform can cure British economic malaise. Is this a fairy tale?
This post was originally published on Dissent MagazineDissent Magazine.
On January 1, 2024, the minimum wage increased from coast to coast. Indeed, 22 states and more than 40 cities and counties experienced wage increases in 2024 — most of them approaching $15. More states will follow with minimum wage increases later in the year. Undoubtedly, this is mainly the result of underpaid workers organizing and fighting for a decent living wage over the past decade…
This post was originally published on Latest – Truthout.
With soaring real estate and housing prices in recent years, housing affordability rates hit a record high in 2022, with half of renters qualifying as “cost-burdened,” new research finds. According to a report by the Joint Center for Housing Studies of Harvard University published Thursday, there were a record 22.4 million households in which renters paid more than 30 percent of their income in…
This post was originally published on Latest – Truthout.
A new survey highlights how most Americans would be unable to use their savings in order to pay for an unexpected expense. While the poll from Bankrate acknowledged the country’s falling inflation numbers and strong employment trends, it added that “many Americans still don’t have enough savings for a rainy day.” The annual survey, which Bankrate has conducted for the past 13 years…
This post was originally published on Latest – Truthout.
A new report examining the causes of inflation demonstrates that corporate greed and increased CEO pay led to higher-than-necessary costs for American consumers in recent months. The report, from the progressive organization Groundwork Collaborative, found that, in the past two economic quarters alone, 53 cents out of every dollar of inflationary price increases were due to corporate profits.
This post was originally published on Latest – Truthout.
Yahoo (1/4/24)
This week on CounterSpin: The journalists at Yahoo Finance tell us that a Connecticut McDonald’s charging $18 for a combo meal has “sparked a nationwide debate” on escalating prices in the fast food industry. The outrage, readers are told, is “partly attributed” to a recent raise in the minimum wage—which has not yet gone into effect. Spoiler: We never hear about any other “parts” “attributed.” Businesses like McDonald’s, the story goes, “have already raised their prices in anticipation of the wage hike.”
Were there any other responses available to them? Don’t ask! We’re moving on—to how it isn’t just that poor working Joes will have to pay more for a Big Mac, but also there will be layoffs…of fast-food employees. We meet Jose and Jim, who say they thought higher wages would be good, “considering the decline in tipping and increasing living costs.” Alas no, Yahoo explains: “The reality was harsher. The wage increase, while beneficial for some, has resulted in job losses for others, leading to a complex mix of gratitude and resentment among affected workers.” The takeaway: “The debate over the appropriate balance between fair wages and sustainable business practices remains unresolved.”
The piece does go on to lament the mental stress associated with economic uncertainty—not for owners, evidently—and the wise counsel that those troubled might consider “establishing a substantial savings account and making smart investments.”
Elite reporters seem so far removed from the daily reality of the bulk of the country that this doesn’t even ring weird to them. A raise in wages for fast food employees means fast food employees have to lose their jobs—that’s just, you know, “economics.” Union, what? Profiteering, who? The only operative question is, which low-wage workers need to suffer more?
We get a different view on raising the minimum wage from Sebastian Martinez Hickey, researcher for the EARN (Economic Analysis and Research Network) team at the Economic Policy Institute.
Tipped worker (cc photo: Daveblog)
Also on the show: A largely unspoken part of media’s wage conversation is the whole sector of workers whose pay rates are based in…enslavement. Yeah. In 2015, CounterSpin learned about tipped wages from Saru Jayaraman, co-founder of the Restaurant Opportunities Centers United and director of the Food Labor Research Center at the University of California, Berkeley. We hear part of that relevant conversation this week.
The post Sebastian Martinez Hickey on Minimum Wage, Saru Jayaraman on History of Tipping appeared first on FAIR.
This post was originally published on CounterSpin.
2023 is over, and with it, the great inflation surge of the last few years has essentially come to an end. As the progressive economist Dean Baker trumpeted shortly before Christmas, “This Economy Has Landed, We Are at the Fed’s Target” (Beat the Press, 12/22/23). Inflation is now at 2.6%, according to the Federal Reserve’s preferred measure, and is trending further downward. Remarkably, since the Fed began raising interest rates in the spring of 2022, unemployment has maintained a historically low level of below 4%.
Contrast that with the US’s last experience with an extended period of elevated inflation. That was the double-digit inflation of the late 1970s/early 1980s, which the Fed fought by sending unemployment skyrocketing—from 6% in 1979 to a peak of nearly 11% in 1982. With inflation tamed in the fall of 1984—down to 4.3%—President Ronald Reagan declared “Morning in America.”
At the time, the misery index, a rough gauge of societal suffering that sums inflation and unemployment, clocked in at nearly 12%. Today, the same index sits around 7%. If the fall of 1984 was morning, we’re well into the day. The dark, turbulent night is not only behind us; it’s been over for a while.
That’s not how most of the American public seems to feel, though. People continue to rate the economy stunningly poorly, given its performance of late. The University of Michigan’s Index of Consumer Sentiment, for instance, most recently registered 61.3, versus 100.9 during “Morning in America.” In other words, consumer sentiment is currently 39% lower than it was at a time when the misery index was 41% higher.
Meanwhile, Joe Biden has a lower approval rating than any president going back to Jimmy Carter at the equivalent stage of their presidencies (New York Times, 12/28/23). Biden is, in fact, 15 percentage points lower than Reagan, whose economy at the same period of his presidency was, in key respects, significantly worse—unemployment, for instance, was 8.3%.
Joe Biden has lower approval ratings at this point in his first term than any president going back to Jimmy Carter (New York Times, 12/28/23).
The gap between consumer sentiment and economic performance has sparked extensive pontification online, with a variety of reasons being proposed for the disconnect. Arguments have been made for everything from increases in grocery prices (Atlantic, 12/21/23), to real wage declines during much of 2021 and 2022 (Vox, 8/10/23), to social media misinformation (Washington Post, 11/24/23), to partisan polarization (CBS, 8/14/23), to lagging perceptions and a desire for outright deflation (Wall Street Journal, 10/18/23).
It’s also possible there’s been a shift towards general disillusionment with the economic system. In this view, consumer sentiment is now driven more by justifiable anger towards the system rather than disappointment with the real-time performance of macroeconomic variables like unemployment, inflation and GDP that tend to get discussed by the corporate press.
Inequality, after all, has steadily ticked up for decades, catapulting us into a new Gilded Age. The rising support for socialism among younger generations, as well as the salience of inequality in public discourse, could be carrying over into consumer sentiment, though this wouldn’t explain why sentiment is actually most positive among the 18–34 age group.
At the end of the day, there’s probably some truth to all of these ideas. But there’s another fundamental cause of economic discontent that should be getting more attention: corporate media’s single-minded obsession with inflation, which has left the public with an objectively inaccurate view of the economy.
Back in 2019, when asked what metric they considered the most representative of the health of the overall economy, only 30% of Americans selected “the prices of goods and services you buy.” By the summer of 2023, that number had shot up to 57%.
As corporate media relentlessly covered inflation, consumers changed to seeing inflation as the best measure of economic health (YouGov, 7/14/23).
What changed? Well, obviously, inflation spiked. But not only that: Concurrently, media went into absolute overdrive in their coverage of the phenomenon. Over the course of Biden’s presidency, as I’ve previously documented for FAIR (7/13/23), cable news outlets have been noticeably more focused on inflation than on a host of recovery indicators, such as GDP, job growth and consumer spending.
One particularly frustrating example has been that of wage growth, which has gotten about 20 times less coverage than inflation across CNN, Fox and MSNBC since the start of 2022. This imbalance has shown up at print outlets as well, though in somewhat less pronounced form. A search of the New York Times archives returns six times as many results for “inflation” as for “wage growth” for the year 2023. At the Washington Post archives, the ratio is about 9 to 1.
This stark disparity between coverage of wage gains and coverage of price increases is, frankly, absurd. It’s critical to consider people’s income alongside prices, because your economic standing is not merely determined by what you’re charged in the market; it’s also affected by what you take home.
Let’s say you just lost your job, and now you face increased prices at the supermarket. That would be quite bad. But what if prices at the store increased, and your income increased by more? You would come out ahead.
This cheerier scenario has become the norm lately, despite inflation eroding wages for a period during the pandemic. Over 2023, as inflation declined, average real wages (that is, wages adjusted for inflation) climbed. Even zooming out to today vs. pre-pandemic, real wages have risen, though they probably aren’t as high as they would be absent Covid. Moreover, wages have actually remained on trend for production and nonsupervisory workers, who account for about 80% of the private workforce.
Contrast that with the cases of France, Germany, Italy and Britain, where real wages fell over the same period by an average of almost 5%. The US stands out here not for poor performance, but for remarkable resilience in the face of recent global economic shocks.
These facts may come as a surprise to consumers of corporate media, not because this data is totally ignored in corporate news outlets, but because it gets so little attention relative to inflation. News of rising real wages certainly hasn’t gotten through to the average person, who remains convinced of an alternative set of facts about the economy. Recent polling, for instance, finds that just 10% of Americans recognize that wages have outpaced inflation over the past year.
When asked factual questions about the state of the US economy, large majorities err in the pessimistic direction (Financial Times, 12/1/23).
Likely part of the reason why the news about real wages hasn’t broken through is that media have frequently framed wage growth as a concern, rather than as a positive development that allows people to defend themselves from rising prices. As I’ve pointed out before (FAIR.org, 6/1/23), corporate outlets have repeatedly taken the stance that wage growth is bad, because it pushes up inflation:
The New York Times (5/5/23) bemoaned the fact that as inflation fell, wages continued to grow, as though worker’s income catching up to increased prices would be bad news.
As corporate outlets churned out these headlines, the evidence was clear that wages were not driving inflation up in any significant way. Instead, elevated inflation was largely the result of the supply chain disruptions from the Covid pandemic and energy and food market disruptions from the Russian invasion of Ukraine.
The major wage growth–related concern, a wage-price spiral—where rapid price increases are matched by similarly rapid wage increases, eventually leading to an out-of-control upward spiral of each—simply did not materialize. All the fretting was for naught.
This intense focus on inflation without commensurate analysis of income trends has left corporate media consumers ill-equipped to understand the real world. It has, however, left them well-equipped to overwhelm themselves with fear. According to researchers at the Federal Reserve Bank of San Francisco (11/14/22), media preoccupation with the negative noticeably deepened worries of a prolonged period of excess inflation:
Analyzing the volume and sentiment of daily news articles on inflation suggests that one-fourth of the increased gap between household and professional expectations [of future inflation] can be attributed to heightened negative media coverage.
Media alarmism also appears to have contributed to historically depressed consumer sentiment. A quick look at the Michigan Survey’s Index of Consumer Sentiment graphed against a measure of the negativity of news heard about recent changes in the economy reveals an obvious correlation between the two metrics:
Consumers’ reported sentiment about the economy closely tracks the news they say they’ve heard lately about business conditions (University of Michigan Surveys of Consumers).
In summary, then: As corporate media hyper-fixated on inflation, the US public followed suit. As corporate media minimized discussion of wage gains, the American public rejected the idea that they had even occurred. As corporate media went negative, the public went even further south.
Contrast this once again with what happened around the time of “Morning in America.” With Reagan approaching re-election, people reported hearing remarkably positive news about the economy. Despite a misery index reading of almost 12%, essentially unchanged from a year prior, the news consumers reported hearing regarding recent changes in the economy was net positive. Today, with the misery index most recently coming in at around 7%, about four points down from a year earlier, “news heard” is over 60 points net negative.
Amazingly, the most net positive that “news heard” has been on record was +52 points, which it reached in the summer of 1983 and again at the start of 1984. Unemployment during this period ranged from 8–10%. The silver lining could be found with inflation, which had, by July 1983, reached its lowest level in decades. This outcome, however, had come only after an uncompromising war on the working class.
Paul Volcker, who helmed the anti-inflation campaign as Fed chair from 1979 to 1987, reportedly considered “‘the most important single action of the [Reagan] administration in helping the anti-inflation fight’” to be “defeating the Professional Air Traffic Controllers Organization (PATCO) strike in 1981, when Reagan fired and permanently replaced 11,000 government workers and arrested their leaders.” Volcker, for his part, focused on jacking up unemployment to levels not seen since the early 1940s.
As this process began, eminent economists such as John Kenneth Galbraith and Robert Solow sharply dissented against the idea of using such methods. Solow went as far as to say:
To try effectively to wipe out hard‐core inflation by squeezing the economy is possible but disproportionately costly. It is burning down the house to roast the pig.
And to this day, the necessity of Volcker’s policies remains far from unquestioned. Dean Baker, for instance, has argued that inflation would have fallen regardless of whether Volcker raised interest rates, given the early 1980s drop in world oil prices—oil price spikes had been one major factor pushing up inflation in the 1970s.
The New York Times (10/28/84) reported that President Ronald Reagan “presided over a strong recovery and…an inflation rate tamed almost to the inconsequential levels of the 1960s”–that is, to 4.3%, compared to 3.1% today.
But the media evidently loved Volcker’s approach, with historically positive “news heard” regarding the economy almost certainly giving Reagan a boost in the 1984 election, which he won in a landslide.
Just about a week before election day that year, the New York Times (10/28/84) captured the sentiment in the air (emphasis added):
There’s a new mood of confidence that leads some to assert that the world’s mightiest economy, though battered in spots, stands on the verge of returning to the halcyon days of an earlier postwar era when recoveries were strong and inflation mild and of little concern.
”There’s a change in perception around the world from the United States being a lousy place to do business to it being the best place in the world to invest,” says James F. Smith, chief economist for the Union Carbide Corporation. ”We are in a good position to replicate the glory years of the 1960s.”…
Much of the American business community is happy with the results. After-tax corporate profits are strong, capital investment is now the most important force behind the economic recovery and the rate of wage increase is the lowest it has been in decades.
How were workers feeling about their lower wage increases? They weren’t asked.
Despite presiding over a fall in inflation with basically no jump in unemployment, Biden doesn’t seem likely to get the sort of bump Reagan received. That seems to have little to do with an objective assessment of the US economy, and more to do with who mainly benefited from Reagan’s and Biden’s policies.
Reagan lowered taxes on the rich, cut Social Security and crushed labor unions. Biden substantially (though temporarily) expanded the social safety net, driving poverty to its lowest level in US history (when accounting for stimulus payments and tax credits), and spurring a sizable reduction in wage inequality. As far as Biden is from an anti-establishment radical, media outlets owned by the wealthy seem much less prepared to grant him positive economic coverage than they were to shower Reagan’s economy with praise.
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Janine Jackson interviewed Public Citizen’s Peter Maybarduk about Paxlovid price-gouging for the October 27, 2023, episode of CounterSpin. This is a lightly edited transcript.
NPR (12/31/19)
Janine Jackson: There are a number of crises that the Covid pandemic did not create, but certainly threw into relief. It has always been disgusting, frankly, that pharmaceutical companies are permitted to sell necessary, life-improving and life-saving drugs at many times the cost of their development and production, keeping them out of the hands of those who can’t afford them, and leading some who can just about afford them to ration them dangerously. It’s a particularly callous aspect of the US profit-driven system—so out of keeping with basic tenets of public health that one kind of wonders how long it can be allowed to continue.
We’re looking at the latest example of this right now with a Covid-19 treatment. Here to tell us about it is Peter Maybarduk, director of Public Citizen’s Access to Medicines group. He joins us now by phone from DC. Welcome back to CounterSpin, Peter Maybarduk.
Peter Maybarduk: Great to be with you.
JJ: I’m sure that people won’t be shocked to hear that the company in question right now is Pfizer, though they’re hardly alone in these sort of practices. What is this most recent outrage that folks are concerned about?
PM: So Pfizer has more than doubled the price of its Covid-19 treatment Paxlovid—nirmatrelvir plus ritonavir—to the US government from around $530 a course up to $1,390 for a list price now. And that despite the fact that Pfizer’s already made $18 billion off this drug in global sales, and they’re raising the price right at a time when it hurts most, because will, obviously, to fight and to fund pandemic response has diminished greatly, and the US government is transitioning its response to the commercial market.
So there’s very limited public resources now, in the United States and around the world, to ensure continuity of treatment. And in order to make up for the loss of volume, Pfizer has decided to increase prices, but that’s going to suppress demand further; that’s going to make it harder worldwide to access Covid treatment for people that need it.
And it’s also been pointed out that the cost of production of this drug is a mere $13. And when you look at it that way, Pfizer is increasing prices to 100 times the cost of production for this drug.
JJ: I just take a pause there, and we’ll come back to it, but let’s just lay out there: Paxlovid is an important drug; it’s not an ancillary drug. It has been shown to be impactful, and then, globally, access to it has not been what it should have been.
Public Citizen (10/17/23)
PM: So we put out a study just last week finding that there’s been more than 8 million cases of unmet need in 2022 alone, looking in last year’s data; that basically more than 90% of need for Covid treatment, as measured by high-risk infections, was unmet in developing countries.
And this despite the fact that manufacturers have pointed to what they consider to be a supply glut; they say they’re making enough of the drug. But, again, the problem has been monopoly, single source of supply; opaque agreements about who is getting the drug and when; and very high prices have suppressed demand. So that if you look at high-risk infections in the Global South, if you look at even just people over 65—which is what we looked at, but it’s a significant undercount, because it doesn’t give you people with preexisting and ongoing conditions, and other vulnerabilities—you see that very, very, very few of those individuals received Paxlovid when they needed it.
JJ: It just seems, in a way, like there’s at least two different conversations going on, one of which is about: There’s a global health crisis, how do we address it? And then another one that’s like, well, we have these pharmaceutical companies, and they need to make money. And it’s almost as though there’s no overlap.
I mean, I just saw Pfizer’s CEO, a week ago, saying, “We remain proud that our scientific breakthroughs played a significant role in getting the global health crisis under control.” It sounds like, from what you’re saying, that, actually, they could have played a much different role in actually working towards getting the global health crisis under control.
Peter Maybarduk: “Pfizer has decided to charge high prices to the few, rather than affordable prices to the many, in order to meet its benchmarks.”
PM: It’s very frustrating to us that health authorities have relegated so much power to the pharmaceutical companies. In many ways, Covid-19 is a pandemic where prescription drug corporations have determined who receives what treatment or vaccine when, at least at a population level, at a sort of country-by-country level. And health agencies have been on the receiving end of that; they haven’t always known what price another country’s paying, they haven’t known what’s their place in line, the terms and conditions.
And, of course, global health authorities haven’t been able to effectively prioritize and indicate that we must prioritize population A, B and C, in these ratios, in order to end the pandemic as quickly as possible. Instead, drug corporations have really been in the driver’s seat, working privately, secretly, on their own logic’s terms, of where they can make the most money, or what public relations and pandemic concessions they want to make. And, unfortunately, that’s continuing here in this case.
Pfizer could choose to be a good partner at this stage, like set any sort of R&D ideas aside. They’ve made $18 billion off this drug. It’s a bonanza. And there’s an opportunity now to meet the funding shortfall with solidarity and with public health interest. Pfizer can afford to say, “We’re actually going to reduce the price of the drug, because there is a funding shortfall, so that more people can get it, so that we can make up the access gap.”
And you almost don’t hear about that anymore, because prices have been high enough, and funding limited enough, that the world has kind of given up. There was, if you roll the clock back a year or two, there was an ambitious call for a global test-treat programming. So all over the world, you could get a Covid test, and then have a straight path to the appropriate treatment that you needed.
And what materialized is a small pilot program in a dozen countries, instead of that great global ambition, and a very significant factor there has been that the treatments are too expensive for developing countries, or for the global effort, to pay for. And so, instead, we just have this shadow of an effort. We’re almost giving up on the idea that treatment can be available to everyone.
And if you walk around in public health circles, you’ll sometimes hear, well, there’s no demand; countries aren’t ordering the treatment. Then you have to think about why. And if you are a health ministry that’s squeezed for resources, you have to make tough decisions about, you know, hospital beds and available protocols against malaria. Do you shell out what was then $250, minimum, probably $250 to $500, I think, and probably now potentially going to be more, to Pfizer for this treatment? Or do you hold on that, not least given you don’t even know when you’ll receive it, because of those shortages.
And it might be different if the drug actually costs something like that. But knowing Pfizer’s production costs are far lower, $13, perhaps less, and the revenue they’ve made so far, it’s a conscious choice on Pfizer’s part to make it harder to prescribe Paxlovid, and to make up for that by charging a premium. Essentially, Pfizer has decided to charge high prices to the few, rather than affordable prices to the many, in order to meet its benchmarks.
Common Dreams (10/19/23)
JJ: And that’s a public health decision. It’s not a corporate—it is a corporate, capitalist decision, but it’s a public health decision in its impact. And I just want to say, finally, you’ve been quoted saying Pfizer is treating Paxlovid like a Prada handbag, a luxury for the few, rather than a treatment for the many. Meanwhile, Pfizer CEO took home $33 million last year, having been gifted a 36% raise from 2021. I think that folks can see that this is stomach-churning and confusing and weird and bad, but what Pfizer is doing is incentivized, or at least they’re not being prevented from doing it. So where are the checks, or where are the guardrails, on this sort of behavior? What do we do about it?
PM: Yeah, that’s part of the problem, is that we have insufficient guardrails. HHS recently negotiated a deal with Pfizer to keep people without insurance on treatment in coming years, and to contribute courses to a national stockpile. So HHS has taken some appropriate steps to ensure continuity of treatment here. But why did HHS have to pay the high prices that it paid? Could it have negotiated lower prices?
I think it is a significant concern, and undergirding it all is the patent monopoly that allows Pfizer to exclude competitors from the market; again, the drug is inexpensive to produce, and had we authorized generic competition, we probably could have an affordable supply by now, bringing these prices down to earth. We’re not paying for research and development here, we’re paying for a monopoly.
And we were among a number of organizations that called on the Biden administration early on to issue a compulsory license, or exercise certain rights it has under law, to authorize affordable generic competition with expensive patented Paxlovid, and bring alternatives online. And, of course, the government hasn’t acted on that proposal because of the lobbying power of the pharmaceutical industry.
So right now we’re kind of stuck, but there are reforms that we can make to prevent this sort of thing from happening again. And there’s going to be ongoing discussions about that. I mean, you saw this week, in the hearings for a new NIH director, we saw Senator Sanders taking a stand and saying we have to take responsibility for medicine pricing in our executive policies, and there will be an upcoming review by HHS and Commerce of government authority to act against drug monopolies in certain circumstances. So it’s an ongoing conversation, but our government has too few tools, and does not sufficiently use the tools that it has.
JJ: We’ve been speaking with Peter Maybarduk, director of Public Citizen’s Access to Medicines group. You can learn more about their work online at Citizen.org. Thank you, Peter Maybarduk, for joining us this week on CounterSpin.
PM: Thanks so much.
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Paxlovid tablets
This week on CounterSpin: Advertising critics have long noted that a company’s PR tells you, inadvertently but reliably, exactly what their problems are. The ad features salmon splashing in crystalline waters? That company is for sure a massive polluter.
That’s the lump of salt with which to take the recent announcement from the US Department of Health and Human Services that their new deal with Pfizer “extends patient access” to Covid treatment drug Paxlovid and “maximizes taxpayer investment”—as the HHS works with the drug company to “transition” Paxlovid “to the commercial market.” The announcement doesn’t note that this “transition” entails hiking the cost of the treatment to more than $1,300 for a five-day course, or 100 times the cost of production.
We discuss this outrage, and what allows it, with Peter Maybarduk, director of the Access to Medicines group at Public Citizen.
(image: Truthout)
Also on the show: CounterSpin listeners, more than many, recognize news media as a keystone issue—important not simply in their own right but to all of the other issues we care about. The media lens—the points of view that they show us day after day, those they obscure or ridicule—affects the way we understand the world, our neighbors and what’s politically possible. That’s why we see the fight for a thriving media ecosystem as bound up completely with the fights for social, racial, economic and environmental justice. We talked about that nexus with Maya Schenwar, author and editor at large of Truthout, and director of a new project, the Truthout Center for Grassroots Journalism.
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As the memory of President Ronald Reagan’s administration recedes, estimation of his deeds grows, and for good reason. A cursory look at his end-of-office stats impresses the casual observer — 67% increase in GDP, from $3 trillion in 1981 to $5 trillion in 1988, net job addition of about 18 million, reduction in the unemployment rate from 7.5% to 5.5%, at that time, one of the longest peacetime expansions in U.S. history, and inflation rate falling from 13.5% to 4.1%. Reagan served with a Democratic Congress and it is difficult to determine whose actions and policies determined outcomes. Was he more a bystander than an active participant in the downfall of the Soviet Union? Statistics show that during his administration the United States started on its road to continuous monetary and trade deficits.
Placing Reaganomics in its realistic context displaces Republican rhetoric that extols the Great Communicator as the model for presidential performance. President Reagan had enviable accomplishments for which he deserves praise, the most significant being the dignity he brought to the office, the trust and stability he gave the American people, and his manner of communicating and connecting with the populace.
Reaganomics had four simple principles — reduce government spending, reduce income and capital gains marginal tax rates, reduce government regulation, and control the money supply to reduce inflation. Containing the Soviet Union and preventing the spread of communism dominated foreign policy.
Reduce Government Spending
The top graph shows federal debt increasing from $998 billion to $ 2.6 trillion during Reagan’s reign. The lower graph has total credit outstanding also almost tripling from $5 trillion to $14 trillion during the same period.
True, it was a Democratic Congress that initiated the federal deficit, but this occurred during his administration and he had some executive power to lower it.
Reagan’s administration’s fiscal policy directly opposed his stated objectives and those of the GOP. Credit throughout the nation and federal deficits started a fast rise in debt that determined America’s future economies.
Tax Reduction
The 40th president of the United States reduced income and capital gain taxes. Objectively, income tax rates determine the transfer of money between the government and taxpayers. Neither direction, taxes up or taxes down, adds or subtracts money to the economic system or allows more or less available spending to the economy; purchasing power stays the same, which means the total purchases of goods and services remain the same.
Individual workers and taxpayers benefit from tax cuts. Stimulating the entire economy with income tax breaks is a psychological phenomenon. The exaggerations, promises, and optimism generated by tax breaks fashion a more optimistic public that incorrectly assumes the cuts stimulate additional spending to an already combined consumer and government spending. Creeping into the debate are other false assumptions — those who have excess funds will purchase domestic goods, invest, and stimulate growth. Not considered is that individuals might purchase imports and invest in speculative ventures that only churn money, both decreasing available purchasing power in the domestic economy. Reagan’s tax cutters were also against government deficits and did not realize that the former leads to the latter.
New York Times, March 6, 2018, “In Blow to Trump, America’s Trade Deficit in Goods Hits Record $891 Billion.”
Money from the tax cuts helped Americans buy more imported goods than ever in 2018. In addition, to finance the tax cuts, the government needed to borrow more dollars, some of which came from foreign investors.
GDP has steadily grown, with a few bumps, and no relation to the lowering of taxes has been proven. A government report: Taxes and the Economy: An Economic Analysis of the Top Tax Rates since 1945, Thomas L. Hungerford Specialist in Public Finance, September 14, 2012, concludes:
The top income tax rates have changed considerably since the end of World War II. Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War. The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie. However, the top tax rate reductions appear to be associated with the increasing concentration of income at the top of the income distribution. As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009. Tax policy could have a relation to how the economic pie is sliced, lower top tax rates may be associated with greater income disparities.
To fund government programs, Reagan signed tax increases into law every year Huge increases in FICA and signing of the Tax Equity and Fiscal Responsibility Act, the “largest peacetime tax increase in American history,” describe Reagan’s ambivalence to tax reductions. If the budget was balanced, then a reasonable conclusion could relate the growth of GDP to a cut in taxes. The economic stimulus due to deficit spending and credit, coupled with the reduction of oil prices and interest rates, probably played more significant roles in the GDP rise.
Note that the graph of GDP coincides with the previous curves of credit outstanding and government debt. All these parameters started their huge increases during the Reagan administration.
Deregulation
True to his word, Reagan offered some deregulation. Was it beneficial?
The Garn–St. Germain Depository Institutions Act of 1982, which deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgages, contributed to the savings and loan crisis of the late 1980s. William A. Niskanen, a member of Reagan’s Council of Economic Advisers has written that deregulation had the “lowest priority” of the items on the Reagan agenda.” Reagan “failed to sustain the momentum for deregulation initiated in the 1970s” and he “added more trade barriers than any administration since Hoover.”
Inflation
Reagan’s policies for controlling the money supply to reduce inflation were contradictory. Paul Volcker, who chaired the Federal Reserve from August 1979 through August 1987, resolved the anomaly.
It always seemed to me that there is a kind of common sense view that inflation is too much money chasing too few goods. You could oversimplify it and say that inflation is just a monetary phenomenon. There are decades, hundreds of years, of economic thinking relating the money supply to inflation, and people to some extent have that in their bones. So I think we could explain what we had to do to stop inflation better that way than simply by saying that we’ve got to raise interest rates. It was also true that we had no other good benchmark for how much to raise interest rates in the midst of a volatile inflationary situation. Then in October [1982], or whenever it was, the money supply (by some measures) was increasing again rather rapidly. We had a tough explanation to make, but I thought we had come to the point that we were getting boxed in by money supply data that was, in any event, strongly distorted by regulatory changes and bank behavior. We came to the conclusion that it was not very reliable to put so much weight on the money supply any more, so we backed off that approach.”
Decreasing income taxes and increasing the money supply by lowering interest rates and running deficits are not the recommended means to reduce inflation. So, why did inflation get tamed — chalk it up to greatly lowered oil prices and cheap imports from rising Japan and the rejuvenated China.
Reduced Unemployment
We come to the most often cited success of Reagan’s policies; an increase of 18 million jobs, but where? All of them were in the non-manufacturing sectors. The Bureau of Labor Statistics, shown below, reports 11 million growth in the service industries, 4.5 million in wholesale and retail trade, and 2 million in the financial industry.
Any employment increase is welcoming and significant. Few of these industries are export industries and are, in effect, supported by the surplus income of manufacturing workers. Banks don’t normally lend to consumers to buy hamburgers, and going to a doctor doesn’t increase assets. Services, trade, and finance create intangible assets and not the tangibles that have defined prices.
This leads to Reagan’s greatest failure; during an era of global prosperity, and while Japan and Germany enhanced their export industries, America started its monotonically increasing deficit in its surplus account. The graph below shows that 1983 was a fatal year for the United States; the year it became a global debtor nation.
During the Reagan decade, Japan’s current account balance went from a record deficit of $10.7 billion in 1980 to a record surplus of $87 billion in 1987 before declining to $57.1 billion in 1989. Similarly, the Federal Republic of Germany, after experiencing deficits during 1979–81, had its current accounts balance rebound to about a DM 9.9 billion surplus in 1982 and increase to DM 76.5 billion in 1986.
While Reagan talked mellifluously, the world’s principal nations trade (including an emerging China) flowed with honey. Examine all the graphs and tables and the conclusion becomes obvious: Reagan’s administration policies increased federal and private debt at exponential rates, decreased manufacturing employment, and turned a positive current account into an ever-mounting negative.
Cold War
Reagan talked tough and acted tough — excoriating the Soviet Union, militarily challenging Moscow by greatly increasing the defense budget, and covertly helping Pakistan intelligence in supplying arms to the Afghan Mujahedeen. His 1983 NSC National Security Decision Directive 75 stated that” a central priority of the U.S. in its policy toward the Soviet Union contains, and over time, reverses Soviet expansionism.” The directive noted: “The U.S. must rebuild the credibility of its commitment to resist Soviet encroachment on U.S. interests and those of its Allies and friends, and to support effectively those Third World states that are willing to resist Soviet pressures or oppose Soviet initiatives hostile to the United States, or are special targets of Soviet policy.” None of these pursuits intended to overthrow the Soviet Union, all were long-term, and did not provide mechanisms to end the Cold War.
The Reagan administration approached the 1986 Reykjavik Summit meeting as an informal exploratory session with a limited agenda and found Soviet leader, Mikhail Gorbachev proposing dramatic reductions in strategic arms. Gorbachev led the negotiations between the two governments and led the Soviet Union into disintegration. An end to the Cold War automatically followed. Reagan’s involvement in the proceedings was more as an observer who did not discourage Gorbachev and refrained from interfering rather than a direct participant who engineered the outcome. He was not in office when Russian President, Boris Yeltsin, on December 8, 1991, signed the Belovezha Accords with President Kravchuk of Ukraine, and Chairman Shushkevich of Belarus, “recognizing each other’s independence and creating the Commonwealth of Independent States (CIS) to replace the Soviet Union.”
Step away from Reagan’s relation to the decline of the Soviet Union and step forward to examine his policy of preventing communist expansion and his foreign policy initiatives appear troubling.
Conclusion
President Ronald Reagan had a vision that serves one sector of today’s Republican Party, a vision of self-reliance, limited government, stout defense, and world leadership toward freedom. His administration contradicted that vision, using big government to expand the economy, expand the defense budget, and engage in useless assistance to anti-communist tyrants who crippled their defenseless peoples and stained America’s image as a democratic and peace-loving nation. Federal debt and trade deficits gained impetus during the Reagan presidency. A pledge to balance the federal budget never materialized in any of his eight years in office.
The Gipper can take some credit for propelling an already declining Soviet Union into total decline. The most significant contribution to the political environment of the time was himself. The nation was more united during his tenure in office, exhibiting bipartisan cooperation and not displaying the antagonisms, adversities, and lack of cohesion that characterize 21stcentury America. He connected with the populace, performed with dignity, and portrayed an optimism that energized the public. The contradictions he personally displayed mirrored the contradictions of his policies ─ at times Ronald Reagan seemed disengaged and disenchanted with his surroundings, but his private notes, policy directives, speech writings, and alertness when the U.S. was challenged indicate he was deeply involved in governing the United States of America. Similar to Ronald Reagan, the results of the governing are contradictory and depend upon perspective.
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